Parliament Enacts Law Mandating 90-Day Deposit Insurance Payout for Banks Under Restrictions

The Parliament of India enacted The Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021, which received the President's assent on August 13, 2021, and was subsequently published for general information. This Amendment Act, designated as No. 30 of 2021, further modified the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (referred to as the principal Act). The legislation was introduced to address the challenges faced by depositors of banks placed under moratorium or other restrictions by the Reserve Bank of India, ensuring a more timely access to their insured deposits. The Act is set to come into force on a date to be appointed by the Central Government through a notification in the Official Gazette.

A significant change introduced by the Amendment Act is the insertion of a new Section 18A into the principal Act, which establishes the Corporation's liability to make interim payments to depositors of insured banks. This provision applies when an insured bank is subject to any direction, prohibition, order, or scheme under the Banking Regulation Act, 1949, that restricts depositors from accessing their funds. In such scenarios, the Corporation becomes liable to pay each depositor an amount equivalent to what is payable under Section 16 of the principal Act, effective from the date such restrictions take effect. The insured bank is required to furnish a list of outstanding deposits within forty-five days, following which the Corporation must verify claims within thirty days of receipt. Crucially, the legislation provided: "Provided that the total period of time between the date when the Corporation becomes liable to pay to the depositor and the date of payment to the depositor shall not, subject to the provisions of sub-section (7), exceed ninety days". This ninety-day timeline also applies to banks where such restrictions were already in force at the commencement of the Amendment Act, with the period computed from the commencement date. The Act also amends Section 2 of the principal Act to include banks under such directions or schemes within the definitions of 'insured bank' and 'eligible depositor'. Furthermore, Section 15 was amended to allow the Corporation, with the Reserve Bank of India's prior approval, to raise the premium limit payable by banks, currently set at fifteen paisa per annum for every hundred rupees of total deposits. Sections 19, 20, and 21 of the principal Act were also modified to incorporate references to the new Section 18A, and Section 21 was further amended to empower the Corporation to defer or vary repayment timelines from insured or transferee banks and to charge penal interest for delays in repayment.

The legislative intent behind the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021, was primarily to enhance depositor protection and instill greater confidence in the banking system. Prior to this amendment, depositors in banks facing severe financial distress, often placed under moratorium by the Reserve Bank of India (RBI), experienced significant delays in accessing their funds, even up to the insured limit. The earlier legal position did not explicitly mandate a time-bound interim payment mechanism for such situations, leading to prolonged uncertainty and hardship for depositors. The new Act addresses this critical statutory gap by ensuring that depositors receive their insured amount within a strict ninety-day timeframe from the date the bank is placed under restrictions. This introduces a new right for depositors to receive timely payouts and places a clear obligation on the Deposit Insurance and Credit Guarantee Corporation (DICGC) to facilitate these payments. The policy rationale is to safeguard the interests of small depositors, prevent panic withdrawals, and maintain financial stability by providing a robust and swift resolution mechanism during banking crises. The amendments also grant the DICGC greater flexibility in managing its financial position and recovering funds from distressed banks, including the ability to charge penal interest for delayed repayments, thereby strengthening its enforcement mechanisms.

Keywords: Deposit Insurance, DICGC, Banking Regulation Act, Depositor Protection, Financial Stability, Interim Payment, Moratorium, RBI, Amendment Act

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